Price consciousness and financial services

TABLE OF CONTENTS

CHAPTER 1 EXECUTIVE SUMMARY 3

Introduction 3

The future decoded 3

Price consciousness is in flux, with age and geographic location playing a key role 3

Expenditure on housing, food and transport takes the biggest slice out of Europeans� budgets 3

Payment methods and propensity to pay is changing across Europe and the US 4

Cost is the key dynamic for consumers but attitudes to price are diverse and complex 4

Time is money, and consumers are willing to pay for convenience, quality and specificity 4

Although consumers want low cost products, a growing consumer subgroup want cheap branded goods that will elevate their status 4

�Rich� does not always mean �high-spender�: there are many affluent people who will shop around for bargains 5

Action points 5

CHAPTER 2 INTRODUCTION 15

What is this report about? 15

Who is the target reader? 15

How to use this report 15

CHAPTER 3 THE FUTURE DECODED 17

Introduction 17

Trend: Price consciousness is in flux, with age and geographic location playing a key role 17

Datamonitor classifies respondents as high, low or moderately price conscious 17

Swedish and Dutch consumers are more price sensitive than Italians 19

Age indicates price sensitivity better than gender � male and female 24-35 year-olds are the most price conscious 22

Trend: Expenditure on housing, food and transport takes the biggest slice out of Europeans� budgets 23

Share of wallet is not a simple predictor of attitude to price and payment 24

Trend: Payment methods and propensity to pay is changing across Europe and the US 25

Online billing and direct debit are becoming increasingly popular 26

Consumers prioritize payments to financial services providers 27

Younger consumers are more likely to delay the payment of financial services bills 28

Insight: Cost is the key dynamic for consumers but attitudes to price are diverse and complex 30

Money talks: price is the priority in four key industries 30

While the choice of electricity or gas supplier depends on price, banks are chosen foremost on the basis of service 31

Insight: Time is money and consumers are willing to pay for convenience, quality and specificity 34

Family time is a priority, but as lifestyles get busier, values are increasingly compromised 34

Time-saving products are often high quality and expensive, yet serve as welcome antidotes to hectic lifestyles 35

There are high proportions of convenience consumers in Sweden and the UK, but not in France, Spain or Holland 37

Convenience consumers want less stress and more time but are willing to experiment to find the right tailored product 39

Convenience customers expect to be rewarded for their loyalty to financial services providers and prefer to avoid the hassle of switching 41

Although convenience consumers switch less, their loyalty depends on getting good service and competitive prices 42

In an effort to keep life simple, convenience consumers prefer packaged products from insurance providers 44

Financial services providers must be careful not to assume that convenience consumers� behaviors are static 45

Insight: Although consumers want low cost products, a growing consumer subgroup wants cheap branded goods that will elevate their status 47

Low earners enjoy luxurious or prestigious indulgences yet stay within budget 48

Attitudes to brand provide further evidence of the masstige phenomenon 49

In percentage terms, masstige populations are largest in Holland, Sweden, France and the US, and smallest in Spain and the UK 50

Despite being brand sensitive, masstigers seek customization and welcome extensive product offerings 51

Masstige consumers choose to save in some areas to fund spending in others 53

Young and old masstige consumers are more likely to switch financial services providers, but brand orientation influences decision 54

Masstigers may be very willing to walk, but at the same time they expect to be rewarded for their loyalty to financial services providers 56

Insight: �Rich� does not always mean �high spender�: there are many affluent people who will shop around for bargains 57

Low and high earners alike seek value for money across all industries 59

There are enough bargain-hunters to warrant attention from retailers, but not from sectors where marketing is less precise 60

Despite being high earners, these affluent consumers are hungry for bargains, not indulgences 61

Bargain-hunters are also less concerned with brand 62

Bargain-hunters are more likely to switch than the rest of the population 63

Bargain-hunters seek financial services providers with a competitive price rather than a strong brand 64

Although they are prone to switching, bargain-hunters do expect loyalty rewards from their financial services providers 65

Insights show the plethora of price conscious groups that financial services providers can target 67

CHAPTER 4 ACTION POINTS 68

Introduction 68

Make competitive pricing a priority to acquire and retain consumers 68

Companies must be proactive about price innovations� 68

�but they must also react to competitor innovations 69

Design marketing strategies around price to maintain and increase the customer base 70

Develop and implement loyalty schemes to acquire and retain consumers 71

Credit card providers have already been implementing loyalty schemes 72

CHAPTER 5 APPENDIX 74

Supplementary data 74

Definitions 75

Research methodology 76

Future readings 77

Report writing team 77

Datamonitor�s custom research capabilities 77

LIST OF TABLES

Table 1: Number of adults in each price consciousness band in each of the eight countries surveyed, 2004 19

Table 2: Average European household expenditure and estimated propensity to pay for different elements of the budget, 2001 25

Table 3: The number of adult convenience consumers in each of the eight countries surveyed, 2004 39

Table 4: The number of adult masstige consumers in each of the eight countries surveyed, 2004 50

Table 5: The number of adult convenience consumers in each of the eight countries surveyed, 2004 61

Table 6: Importance of factors to consumers when choosing a bank, by country 74

Table 7: Importance of factors to consumers when choosing a bank, by country 75

LIST OF FIGURES

Figure 1: 53 per cent of respondents (2,654) were rated moderately price conscious 18

Figure 2: Dutch and Swedish consumers are the most price conscious in Europe and the US 20

Figure 3: Although both nations are price conscious, Swedish consumers are financially prudent, while Dutch consumers are much less cautious 21

Figure 4: On average, 25-34 year-olds are the most price conscious, with sensitivity reducing with age 23

Figure 5: European consumers spent the most on housing, food and transport in 2001 24

Figure 6: While the use of automated and online payment is growing in popularity, around half of US consumers in 2004 had not tried either 27

Figure 7: Consumers in the UK do not delay payments to financial services providers 28

Figure 8: The older the consumer, the more sensible their approach to managing finances 29

Figure 9: Price is predominantly the most important factor when choosing a service provider 31

Figure 10: Banks are chosen on the basis of service, but price matters most when choosing a utility 32

Figure 11: Both price and brand influence switching behavior 33

Figure 12: People see simpler lifestyles as the key to having more family time, but find this hard to achieve 35

Figure 13: If people pay extra for time-saving products, they are also more likely to indulge to escape daily pressures 36

Figure 14: Italian, Swedish and American consumers are more willing to pay extra for time-saving products 38

Figure 15: The convenience consumer is keen to experiment, de-stress and differentiate 40

Figure 16: As part of their strategy to obtain effective service and tailored products, convenience-driven consumers value the recommendations of family and friends 41

Figure 17: Convenience-driven consumers expect to be rewarded for loyalty to financial services providers and see switching as troublesome 42

Figure 18: Across Europe, convenience consumers are more likely to complain than switch, although their switching rates are still significant 43

Figure 19: Convenience consumers prefer to buy all their insurance products in one package from their provider 44

Figure 20: Convenience consumers have historically been less inclined to switch financial services providers 45

Figure 21: Convenience consumers may not have switched in the past, but their attitudes to switching are changing 46

Figure 22: German consumers grapple for a piece of haute couture whilst Habitat commissions Manolo Blahnik 47

Figure 23: Indulgence: there is very little variation between high and low income groups 48

Figure 24: With the exception of the 65+, age group has little influence on brand sensitivity 49

Figure 25: Just the look � Jasper Conran range at Debenhams 51

Figure 26: Despite being highly brand sensitive, masstigers also value tailored products and service 52

Figure 27: Masstigers are more likely to purchase on credit than other consumers 54

Figure 28: Masstigers are more likely to switch than the average consumer 56

Figure 29: Masstigers expect to be rewarded for their loyalty, especially the young and old 57

Figure 30: Target Corporation in the US achieved revenue growth well above the industry average in 2004 58

Figure 31: Across nations income does not dictate price sensitivity and in France, Italy, Sweden and Britain high earners are more price conscious than low earners 60

Figure 32: The well-heeled bargain-hunter is less likely to indulge; one of the manifestations of the highly price conscious nature 62

Figure 33: Despite having the money to invest in brands, this segment is unconcerned with the cachet behind the name 63

Figure 34: Young, wealthy bargain-hunters are most likely to switch, while middle-aged masstigers have a switching rate similar to the overall average 64

Figure 35: Impervious to the influence of brands, the well-heeled bargain hunter is enticed by savings rather than rep 65

Figure 36: On the whole, bargain hunters generally want to rewarded more than the average con 66

Figure 37: Capital One continues to innovate in the credit card market with rock-bottom interest charges on balance transfers and purchases 69

Figure 38: MORE TH>N�s website is very successful at advertising all the savings and discounts that the company has to offer 71

Figure 39: The Nectar card is an example of a multi-retailer coalition which financial services providers can look at creating to improve customer retention and acquisition 73

Figure 40: Datamonitor�s core consulting capabilities 79